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Commentary: From GM to the gridiron: the public cost of private folly

This article first appeared in the St. Louis Beacon, June 11, 2009 - The trouble with free market economics is that the free market doesn't exist. Never has; never will. Like true love or perfect abs, it is an ideal that can be approximated but never fully realized. The reason for that is really quite simple: People cheat.

Adam Smith's "invisible hand" of market self regulation has always been cuffed by the chains of human duplicity. Medieval England, for instance, was terrorized by marauding Vikings who found looting to be more lucrative than trade. Their raids, in turn, gave rise to the institution of knighthood.

The knights provided protection, but their services were not free. Taxes were levied to defray the high cost of defense. With the taxes, came laws and commercial regulations to ensure that the protectors got their cut of the action. Some knights went so far as to claim the right to spend the "first night" with prospective brides from the estates they ruled in exchange for granting the young women permission to marry. So much for limited government intervention ...

In modern America, the closest thing you'll find to truly free trade is the underground narcotics market. Because the entire enterprise is illegal, there are no pesky government regulations concerning product purity, debt collection or distribution rights. Absent access to the civil courts, these matters are resolved at gun point, which is why large swaths of our urban landscape have been transformed into free-fire zones.

Somewhere between the extremes of the knight-in-the-bedroom and laissez-faire market regulation via drive-by shooting, lays a theoretical middle ground wherein the government functions as a referee, impartially enforcing just laws and regulations to ensure fair competition. This is the model that economists rely upon when discussing the mechanics of the free market. Unfortunately, said model is no where to be found in the real world.

Even in the best of times, business interests lobby Congress on behalf of self-serving legislation. That practice explains why we have a national commitment to produce ethanol to reduce our dependence on foreign oil despite numerous studies that indicate it takes more petroleum to make a gallon of ethanol than you can save by burning it. It also explains why the Air Force is about to get eight shiny new C-17s that it doesn't want.

In the worst of times, we simply abandon all pretenses of free market economics because nobody wants to suffer the consequences that those principles entail. Last fall, it came to light that Wall Street investment banks had been bundling worthless sub-prime mortgages into equally worthless securities, which were then guaranteed by the AIG Corp. with money it didn't have.

Had the free market been allowed to function, the involved firms would have suffered catastrophic losses because of their reckless behavior. That richly deserved outcome would have caused the collapse of the international banking system.

Deeming the offending parties "too big to fail," Congress rode to the rescue by fabricating $700 billion in TARP funds to stabilize the situation. Public money was thus used to redeem private debt, resulting in government ownership of controlling interests in several Wall Street institutions. A similar -- though lesser -- effort on behalf of the domestic auto industry likewise gave the government controlling interest in Chrysler and General Motors, arguably making Uncle Sam "too big to succeed."

Of course, when the referee bets on one team over another, the game changes. Lehman Brothers was left to its free-market fate; Bear Stearns had to be saved. As George Will pointed out, bailout money enabled GM to offer 5-year zero percent financing on the cars it makes. Ford, which accepted no government assistance, had to offer a comparable plan or risk losing market share.

A Ford shareholder thus can't win for losing. The government extracts taxes from him under penalty of law, only to give the money to a competitor. GM uses its windfall to tender interest-free financing. Ford, in turn, has to cut into its profitability to match the deal. Ultimately, the Ford shareholder pays taxes to his government to reduce the value of the stock he owns. Catch-22.

Nowhere are the hazards of public investment in private enterprise better illustrated than in the sordid history of professional football in St. Louis. After Bill Bidwill took his Cardinals to greener pastures in the desert, the city was left without a team.

Civic leaders initiated efforts to secure an expansion franchise to replace the Big Red. They soon recognized that old Busch Stadium was not up to current NFL standards -- which, incidentally, was why Bidwill left.

Operating on the "if you build it, they will come" theory of stadium construction, a state-of-the-art football facility became a municipal priority. When we had a team, a new stadium was out of the question. Once there was nobody to play in it, a new stadium was suddenly critical.

Ultimately, a city-county-state partnership managed to erect what is now known as the Edward Jones Dome. After two failed attempts to win an expansion franchise, local movers and shakers finally lured the Rams to town to play in the publicly financed venue.

Now that the team's for sale, there's a very real possibility that new owners could move it to another city for a sweeter deal. Should that transpire, taxpayers will be left with the tab for an abandoned 67,000-seat domed stadium that they're presently renovating to the tune of an additional $30 million, and a vacant palatial training facility in Earth City. All that so they can follow the gridiron exploits of the Cardinals and Rams on television.

Whether you're talking Wall Street, Detroit or the National Football League, free-market enterprises often cost taxpayers a lot of money.

M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.